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Is the NEM facing its darkest hour?

The continued lack of a national energy approach is threatening to undermine the National Electricity Market.

Although it is often taken for granted, the National Electricity Market (NEM) is a remarkable example of governments and industry coming together to solve a uniquely Australian problem.

Stretching 5000 km from Port Douglas in Queensland to Port Lincoln in South Australia, the NEM is the longest interconnected power system in the world. Through its 40,000 km of transmission lines, the network services 9 million customers and accounts for approximately 80 per cent of Australia’s total electricity consumption.

Considering its complexity and scale, the NEM has served households and businesses extremely well in Queensland, New South Wales, the ACT, Victoria, Tasmania and South Australia by providing them with reliable and – at least until recently – affordable electricity.

However, the rapidly accelerating transition from centralised fossil fuel generators to distributed renewable generation has placed added demands on the NEM that it was never designed for. When combined with a challenging political environment, a slow reform agenda and a lack of long-term national energy policy, the strain on the NEM was acute at several points over the summer, particularly with some of our ageing coal-fired power stations going MIA in the heat when they were most needed.

Never let a good crisis go to waste

The September 2016 statewide blackout in South Australia may prove to be a key moment in Australian energy policy history, as it set in motion a series of events that could ultimately change the future of the NEM.

Instead of waiting to see what caused the blackout – a freak once-in-50-year storm – the Federal Government adopted the old Winston Churchill adage “never let a good crisis go to waste” by using the blackout to criticise the South Australian government’s adoption of renewable energy.

This scathing criticism left the South Australian government with little choice but to respond, and respond they did.

Instead of bowing to the pressure, South Australian Premier Jay Weatherill doubled down on South Australia’s renewable energy ambitions. He increased investment in renewable energy projects and delivered a number of exciting new initiatives that have given the state greater energy independence.

In addition to the already completed 100 MW lithium-ion battery in Jamestown, the South Australian government has revealed plans to build the world’s largest virtual power plant, a 150 MW solar thermal power plant and a seawater pumped hydro facility. These projects have quickly propelled South Australia to a position of global leadership in renewable energy technology.

In addition, the South Australian experience is serving as a real-life case study of the challenges and opportunities facing electricity markets as they transition from large-scale centralised fossil fuel generation to distributed generation from multiple small-scale renewable sources.

Difficulties mastered are opportunities won

The continued absence of an overarching national energy policy has resulted in the other states and territories adopting their own transitional pathways and varying levels of clean energy ambition. States such as Victoria and Queensland have followed South Australia’s lead by introducing ambitious renewable energy targets, while Tasmania has raised the prospect of assuming greater energy independence from the mainland.

Obviously, this fractured policy landscape is not optimal in the context of the NEM. While the Federal Government has claimed that its National Energy Guarantee can incorporate the various state policies, it remains to be seen whether this can be achieved to the satisfaction of all involved. The policy will ultimately need the support of all the states and territories of the COAG Energy Council to be successful.

Despite the many slings and arrows between the states and the Commonwealth and the chopping and changing of federal energy policy, it is not time to give up on a national energy approach. While it will never be perfect, a unified approach is more efficient and more likely to deliver superior reliability and price outcomes for Australian households and businesses than a piecemeal, state-based approach. Our hope is that we can get to a stage where the NEG policy architecture is one that all parties can live with, and then we can dial up the level of emissions reductions as we go.

The transition to an electricity system based entirely on clean energy is a monumental task. And it makes more sense to tackle the challenges together so that we can reach our goal faster than if we were to go it alone. To borrow another phrase from Churchill, “difficulties mastered are opportunities won”.

This article was first published in the April 2018 edition of ecogeneration.